Welcome to Beijing “Disneyland”

This should serve as a warning to all foreign investors looking to enter China. Compared to the rest of the world, China actually has a relatively comprehensive set of IPR regulations. The problem right now lies in their enforcement. Beijing claims that it’s making an effort to crack down on piracy, which is an integral part of almost every industry imaginable within China, from DVDs and LV handbags to SMART cars and prescriptions drugs.

For years, Beijing has placed the blame of China’s lack of IPR enforcement upon the local governments, which it claims are ignoring the policies implemented by the central government. This may be true to some extent but let’s not forget what we’re dealing with here. As a one-party state, the CCP has complete control of the system. The government is involved in almost every single aspect of the economy. So how credible is the CCP when it claims that it’s already doing its best? Unless…PIRACY IS GOOD.

China’s aspiration for globally recognized national champions and its ambition to establish itself as a technological superpower will be realized at the expense of foreign investors. Unlike other previous developing countries, which all had serious IPR problems but eventually caught up to Western standards brought upon by foreign pressure, China’s has little motivation to follow suite since it has more leverage than its trading partners. Although foreign investors understand the high level of risk involved relating to IPR infringement when they invest in China, with a potential consumer market of 1.3 billion, the CCP is confident that foreign investors will continue to flock to China with their new technologies. Currently, within most industries, foreign investors are required to pair up with a domestic partner. In time, the domestic partner will terminate the partnership and compete with its former foreign partner using a “similar” product. When the two parties go to court and when push comes to shove, as with everything else in China, those with the “connections” will prevail, leaving foreign investors completely vulnerable to such business risks.

As of now, the CCP will only do what’s best for its domestic industries, which is to turn a blind eye to piracy and allow local Chinese firms to profit and “innovate” at the expense of foreign investors. In the future, when Chinese firms become serious about R&D, that’s when the CCP will get serious about IPR protection as well.